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Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs) drive up consumer insolvencies

Friday, 27th July 2018

The surge in consumer insolvencies

Figures released today from The Insolvency Service state that there were 28,951 individual insolvencies in Q2 2018, 62% of which were Individual Voluntary Arrangements (IVAs), 24% were debt relief orders (DROs) and 14% were bankruptcies.

For the second quarter of 2018 the insolvencies are broken down as follows; 4.4% higher than in the previous quarter, and 27.3% higher than in the same quarter the previous year. This continues the increasing trend observed since 2015 and was the highest quarterly total since Q1 2012.

What this means to the insolvency rate per population

In the 12 months ending Q2 2018, the rate of insolvency was 23.1 per 10,000 adults (1 in 433 adults)

Individual Voluntary Arrangements (IVAs)

The number of IVAs in Q2 2018 rose 5.7% compared with Q1 2018.This was the largest quarterly number of IVAs since they were introduced in 1987.

An IVA is a legally binding agreement between a consumer and his or her creditors, usually store and credit cards, bank loans and overdrafts and is supervised by an insolvency practitioner. With an IVA you have more control over your assets and are less likely to lose your home, but it involves paying some of your debts usually over a period of five years and any remaining debts left in the IVA will be written off. Read more on Individual Voluntary Arrangement (IVA) Information / Advice

The impact of Debt Relief Orders (DROs) on bankruptcy numbers

DROs increased by 5.4% on the quarter and by 14.3% on the same quarter in 2017.

Debt Relief Orders were introduced in 2009 and are another form of insolvency for those who have unsecured debts below £20,000, not a house owner, assets below £1,000 and under £50 pcm in disposable income. Those who propose a DRO do not pay anything towards their debts other than the admin fee of £90 and if their circumstances do not change after one year from the commencement of the DRO they are debt free. Read more Debt Relief Orders (DROs).

Those consumers that qualify for a DRO would find this a more attractive scenario than the normal bankruptcy process. For the first time, in 2013, there were more DROs than bankruptcies.

The falling numbers of consumers going bankrupt

Although consumer bankruptcy numbers dropped by 2.6% on the quarter they rose by 7.2% on the year.

Whilst some debt advisors believe the high cost to the consumer in England and Wales to go bankrupt is distorting the numbers another major factor was the introduction of Debt Relief Orders (DROs) in 2009, combined this is likely to have affected the numbers. Another point is the recent change in the amount the debtor must owe before a creditor can petition, this has now risen from £750 to £5,000. Read more consumer bankruptcy and how to apply on line

Note in the table below the numbers going bankrupt in 2009 compared to 2010 - 2018.

The most common insolvency procedure for consumers?

For 2017

Of the 99,196 people who became insolvent in 2017, 59.7% had IVAs, 25.1% had DROs and 15.2% had bankruptcy orders. In 2016 IVAs comprised 55% of all individual insolvencies, compared to 50% in 2015 and 53% in 2014.

For 2018

So far in 2018 we have had only Q1 and Q2 stats but is already looking as if the numbers proposing IVAs will increase from 59.75 to 62-63%

The cost to go bankrupt England v Scotland

In 2009 the cost to petition for bankruptcy in England was £495, this increased by 37% in 2010 and as from 21 July 2016, this has increased further to £680. Meanwhile in Scotland it is just £200.

The fall in bankruptcy numbers after the 2010 increase in fees

Note in the table below that in 2009 (the year before the increase in fees) the number of those going bankrupt was close to 75,000 and that the numbers for 2016, 2017 and 2018 average 15,000.


Year Total Bankruptcies IVAs DROs
2009 134,142 74,670 47,641 1,831
2010 135,089 59,194 50,716 25,179
2011 119,943 41,876 49,058 29,009
2012 109,640 31,787 46,674 31,179
2013 100,998 24,571 48,881 27,546*
2014 99,223 20,345 52,190 26,688
2015 80,404 15,845 40,384 24,175
2016 90,657 15,044 49,417 26,196
2017** 99,219 15,105 59,220 24,895
2018*** 56,682 8,194 35,002 13,486

* For the first time, in 2013, there were more DROs than bankruptcies. ** Figures for the whole of 2017. *** Figures for first quarter of 2018.

We have a full list of all the consumer insolvencies since records began back in 1960, you can view them here Insolvency figures since 1960

Source for numbers above The Insolvency Service









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